Fraud can be committed in a variety of ways, from falsely obtaining monies via procurement, supplier, customer, ghost workers, expenses and a large range of other fraud activities, including identity fraud. Both the tangible or intangible removal of finances and assets from an organisation are considered fraud. Can you be sure that your employees aren’t acting fraudulently?
Here are some of the facts on fraud that we have found to be true:
The average fraud is £108,000,00
The longer a fraud goes undiscovered the more damage is caused. The average fraud lasts 18 months
In 94.5% of cases, the employee tried to cover up the fraud, usually by creating or falsifying documents
The average loss was the same for those companies employing under 100 people as those substantially larger organisations
Most employees were first time offenders. Only 5.2% had committed a previous fraud
In 40% of cases the employees were not referred to the police
Where anti-fraud controls were in place, losses were between 15-54% lower
Where anti-fraud controls were in place, frauds were detected between 34-50% swifter
30% frauds cite lack of internal controls as a reason for the fraud
What are these facts telling us?
That fraud is easy to commit, the employee is unlikely to be caught and even unlikelier to face prosecution and most important of all, that something needs to be done.
What Does Fraud in the Workplace Look Like?
The ACFE (Association of Certified Fraud Examiners) shows that the most prominent red flag warning indicators of employee dishonesty are:
Living beyond financial means (43.8%)
Financial difficulty (33%)
Unusually close relationship with vendors / suppliers (21.8%)
Wheeler-dealer attitude (18.4%)
Divorce and family problems (16.8%)
Some of our other findings indicate that a typical fraudster is:
Between the ages of 36 and 55 (69% of fraudsters investigated)
Predominantly male (79%), with the proportion of women on the rise at 17%, up from 13% in 2010
A threat from within (65% are employed by the company)
An executive or director level position (35%)
Employed in the organization for at least six years (38%)
Described as autocratic (18%) and are three times as likely to be regarded as friendly as not
Esteemed, describing themselves as well-respected in their organization
Likely to have colluded with others (62% of frauds, down just slightly from 70% in the 2013 survey)
Motivated by personal gain (60%), greed (36%) and the sense of ‘because I can’ (27%)
What can organisations do to prevent this?
Here is a recent case study, to show in greater detail one of the many ways that fraud can happen and what your course of action should be:
Shakespeare Classic Line Ltd was run from Nunhold Business Park in Hatton, Warwickshire, whereby they fraudulently sold a fractional ownership share in a fleet of yachts as an investment to unsuspecting members of the public, which involved aggressive and unfair commercial practises and fraudulent trading.
This fraud was brought to our attention by one of the victims, who had no interest at the time from the bank, who were underwriting the finance agreements for Shakespeare Classic Line or by the Warwickshire Trading Standards (WTS). This forced the victim to seek an alternative remedy to free them of the fraudulent contract that they had been duped into signing.
We took the case and used a variety of investigative methods to gather the evidence needed to prove fraudulent activity was taking place; such as going undercover and using former Police interviewing techniques to gain as much evidence as possible.
From the evidence gathered it was clear that the business practise was illegal. The staff of Shakespeare Classic Line were confrontational, forceful and adopted intimidating practises, stating clearly that contracts were to be signed immediately with no cool off periods and no opportunity to take away contracts to review and consider.
Based on evidence supplied by us, Warwick Crown Court in Leamington charged Shakespeare Classic Line Ltd and the two directors, Andrew Stephen Harris and David Keith Evans on 12 counts of fraud. Andrew Stephen Harris received 54 months imprisonment and disqualified from being a director of a limited company for 5 years and David Keith Evans received 21 months imprisonment suspended for two years and disqualified from being a director for 2 years.
But could the client have been made aware of the risks of fraud sooner?
That’s where I come in.
It's Time to Act
A dishonest employee looking to commit fraud can work undetected for an infinite period of time. Often these frauds are only found when the employee has left the business. And if you are vulnerable, then you may have multiple fraudsters acting in your company, all working independently with no knowledge of each other’s criminal behaviour.
A company can end up with a culture of dishonesty, with initial frauds being isolated and minor and escalating in value and frequency, so that the employee sees what they do as routine, a way of their employment life and a dependency on the financial gain as their life is built around the stolen revenue.
We have put together a few do’s and don’ts when considering fraud, but please be aware that this list is not exhaustive:
Develop and implement a zero-tolerance culture, incorporating an anti-fraud policy and fraud response plan. Clearly communicate it to all employees and review regularly, preferably annually.
Conduct pre-employment screening before employees start working for you. Consider periodic checks on existing employees in high risk areas.
Securely destroy all confidential and sensitive business information and wipe all computers and mobile devices before disposal.
Store confidential or sensitive information in a secure place. Limit access to essential staff.
Check your companies registered details at Companies House on a regular basis. Register for Web filing, PROOF and Monitor services.
Review your credit reports for discrepancies on a regular basis.
Educate staff about fraud prevention and detection as part of their induction and ongoing training.
Conduct business checks on new and existing business partners, customers, suppliers and third-party service providers, and be alert to changes of ownership or unusual trading patterns of those that you deal with.
Arrange for your mail to be redirected (for at least a year) if you move premises and notify customers, vendors and other partners of your change of address.
If you don’t receive any mail check with Royal Mail to ensure a redirection has not been set up in your company’s name without your knowledge.
Implement a clear desk policy.
Establish a credible mechanism for staff to report suspicions of fraud.
Encourage a ‘no blame’ culture where issues can be discussed without repercussions.
Ensure your IT security policy covers mobile devices, laptop computers, the internet, email and access. Review it on a regular basis.
Keep computer security software and firewalls up to date.
Assume the information provided by prospective employees is accurate and independently verify it.
Give employees unlimited access to sensitive information where it is not required.
Rely solely on information obtained from Companies House when checking a new supplier or customer’s credit history. Use other credible sources.
Put business bank account details and Directorships into the Public domain (e.g. on your website). It is important to note that signatures will be available on public records if you paper file with Companies House.
Allow employees to keep written records of business passwords.
It’s Time to Act